Quick Facts

Uruguay’s history of economic openness stands out in the South and Central America/Caribbean Region, and the country is considered one of the least corrupt in Latin America. Reforms to enhance regulatory efficiency have made it a more attractive destination for international investment.

Economic Freedom Snapshot

2016 Economic Freedom Score: 68.8 (up 0.2 point)

Economic Freedom Status: Moderately Free

Global Ranking: 41st

Regional Ranking: 6th in the South and Central America/Caribbean Region

Uruguay has struggled to reign in government spending but has made strides in efforts to streamline efficiency in the financial sector and promote greater use of financial institutions and services by the general public. The value-added tax rate has been cut by 2 percent.

Background

President Tabaré Vázquez from the ruling center-left coalition took office in March 2015, pledging to maintain his predecessor’s mix of pro-market policies and a strong social safety net while seeking economic diversification. State involvement in the economy is substantial, and deregulation is needed in telecommunications, energy, and public utilities. Uruguay began a process to legalize marijuana in 2013, but drug trafficking remains a problem in urban areas. Uruguay is a founding member of MERCOSUR and signed a Trade and Investment Framework Agreement with the United States in 2007. The economy is still based largely on exports of commodities such as milk, beef, rice, and wool. Despite excellent banking services, an information-sharing agreement with unstable Argentina has reduced confidence in Uruguay as a safe haven for assets.

Uruguay was tied with Chile as the least corrupt country in Latin America in the 2014 edition of Transparency International’s Corruption Perceptions Index. The country’s Transparency Law criminalizes a broad range of potential abuses of power by officeholders. The judiciary is relatively independent, but the court system remains severely backlogged. Private property is generally secure, expropriation is unlikely, and contracts are enforced.

The top individual income tax rate is 30 percent. The top corporate tax rate is 25 percent. Other taxes include a value-added tax and a capital gains tax. The tax burden equals 27.4 percent of total domestic income. Government spending equals about 32.9 percent of GDP. Budget deficits continue, and public debt exceeds 60 percent of total domestic output. The latest budget includes increased spending on social programs and infrastructure.

Recent reforms have considerably enhanced regulatory efficiency. It now takes about seven days to start a business. The cost of completing licensing requirements also has been reduced. The non-salary cost of employing a worker is low, but restrictions on work hours are not flexible. The new center-left government is committed to fiscal consolidation, but state spending remains high.

Uruguay’s average tariff rate is 4.7 percent. It is illegal to import used cars. Foreign and domestic investors are generally treated equally under the law. State-owned enterprises operate in the energy and telecommunications sectors. The financial sector continues to evolve, but capital markets are underdeveloped and concentrated in government debt. The state continues to influence the allocation of credit.